States, Banks and Crisis – by Thomas Marois

In the last century the states of Mexico and Turkey promoted robust economic growth guided by powerful public banking organizations. Yet since the 1980s through the privatizing of economic activity economic development has been halted. Here Thomas Marois discusses the theory and history of Mexico and Turkey offering an excellent analysis of their neoliberal experiences while proposing new alternatives to reshape the linkages between the financial sector and economic growth.

Mexico and Turkey have been signaled as significant ‘growth markets’. Yet while aggregate GDP per capita levels have increased they remain among the lowest ranked societies in the OECD ‘social justice’ indicator due to underlying inequality of income and power among social classes. By contrast the banks have made record profits year on year, averaging more than double that in most other OECD countries. The balance of power between labor and capital has never been more imbalanced in favor of finance. The analytical thread linking these facts is that Mexican and Turkish leadership and domestic elites remain firmly committed to a neoliberal and finance-led strategy of development that has solidified in recent years as emerging finance capitalism (EFC). I define EFC as “the fusion of the interests of domestic and foreign financial capital in the state apparatus as the institutionalized priorities and overarching social logic guiding the actions of state managers and government elites, often to the detriment of labour.” EFC as the current phase of capital accumulation is distinctive but not distinct from the three decades of finance-led neoliberal transformation processes leading up to it. I want to focus here on the book’s historical materialist analytical framework, which I frame around four premises: (1) states as social relations; (2) banks as social relations; (3) crises as constitutive of EFC; and (4) labour is vital to the nature of EFC.

Premise one: States are social relations

That states are class-based social relations is a historically grounded analytical premise of political Marxist thought, particularly Poulantzian. This line of thinking also sees each phase of capitalism as crystallized in the form of given states. Seeing the Mexican and Turkish states in these terms is important for the overall interpretation of EFC because it allows for non-deterministic analysis insofar as the form of state results from historically specific collective social and class struggles undertaken within the wider context of capitalist world market and associated competitive imperatives. The state is neither a timeless black box of competing individuals, as in liberal thought, nor simply the executive committee of the bourgeoisie, as in more orthodox Marxian accounts. Rather there is an understanding of struggle-induced change built into the notion of ‘state’ that varies historically according to different institutionalizations of power. This too opens the way for conceptualizing alternatives to EFC without resorting to the trope of ‘smashing’ of the state. The details are of course more extensive. However the point is that far from the neoliberal idealizations and discourses of a minimal state the post 1980s turn to market-oriented capital accumulation was constituted by a process of state restructuring to bolster state financial capacity building in Mexico and Turkey.

Premise two: Banks, too, are social relations

Unlike in Marxian state theory the premise that banks, too, are social relations is something relatively novel to Marxian research on banking and development (if not necessarily alien to historical materialist thought). Yet so too does this premise involve unpacking banks’ historically specific institutionalized operations relative to the wider phase of development. This occurs on at least two levels of conceptualization. At the level of the banking system and domestic market, this first means thinking about the material foundations of the banks and the credit system as based on drawing together many people’s money savings for use by a few in order to overcome the barriers that individual private property poses for capitalist production. That is, there is an essentially social and class foundation to banking operations rooted in the exploitative processes of capital accumulation. At the level of banking institutions, this then means also seeing how the banks are social relations at the institutional level. That is, banks too are historically specific institutionalizations of power within given social formations. This conceptualization applies to all banks regardless of ownership categories (be it foreign, domestic, state, or mixed ownership). Posing banking institutions as historically constituted by social relations challenges mainstream empiricist understandings that dominate the literature on banks. Far from presupposing a bank’s operations as determined by ownership, this premise demands an investigation of the banks’ practices and procedures of the banks. Most Marxian accounts unfortunately mirror liberal a priori interpretations of bank ownership.

Premise three: Crises are constitutive of emerging finance capitalism

That moments of crisis matter, in ways not dissimilar to historical institutionalist critical junctures, is a standard Marxian premise. At issue is the idea that crises are internal to capitalist social relations of production and competition insofar as crises constitute an internal disruption. As such, crises provide an opening for change without determining the nature of such change should it occur. In Mexico and Turkey, far from slowing or reversing finance-led neoliberalism, the processes of crisis and recovery have been predominantly shaped by advocates of market-oriented capitalism since the 1980s. It is important to say that the resolution of financial crises have never been merely technical, politically neutral, or classless. Rather, crisis resolution processes have systematically reinforced and strengthened the power and position of financial capital in state and society. As suggested at the outset, this has involved restructuring the state and building institutional capacity to manage recurrent financial crisis. This comes at a social cost that is borne disproportionately by the majority of Mexicans and Turks.

Premise four: Labor is vital to emerging finance capitalism

Like the banks above, integrating labor into an analysis of finance and development in emerging capitalisms is something distinct. The question of labor could not be more significant to the rise of neoliberalism and the consolidation of EFC yet labor and workers are generally ignored in analyses of banking, finance, and development – be it Marxian or otherwise. My particular interpretation draws on Hilferding and, again, works across two interrelated analytical levels, that of society and the banking institutions. The first point is foundational. Namely, it is important to point out, as Hilferding does, that labor creates value in production from which financial capital earns interest. The flip side of this interpretation is the somewhat obvious yet significant fact that finance produces nothing but appropriates value from the wealth-creating laboring classes. The second and more unique point is that labor is directly implicated in financial crisis resolution. The key is that workers’ labor in general provides the base income tax revenue upon which the state apparatus can socialize or draw in financial risks at times of crisis. For example, Mexico’s 1994 and Turkey’s 2001 banking crises and state-led rescues are understood as important turning points in Mexico and Turkey’s subsequent growth and resilience to the current Great Recession. Yet their success as a ‘growth markets’ depended primarily on state and government elites socializing many billions of dollars in financial risks gone bad. Officials take the socialized costs as an unfortunate if necessary fact. This needs to be challenged and reversed.

The need for alternatives to EFC

Each Marxian premise for interpreting the current phase of EFC is presented in such a way that it integrates some general structural features of EFC in light of the historical specificity of Mexico and Turkey such that the possibilities for change remain open to individual and collective agency. That is, I suggest the analytical framework discussed exposes the underlying social relations of power underpinning EFC while providing the analytical foundations for understanding alternatives to EFC, particularly in the key sector of banking. Any substantive alternative to EFC cannot simply modify the form of capitalism in Mexico and Turkey (that is, for example, to simply better regulate the banks and mounting inequality). Rather, the way in which society reproduces itself and the central role of banks therein must be institutionalized along radically different and democratized social economic premises that break with the structural inequalities and exploitative practices of EFC. The central point made is that the banking system and financing of development must be subordinated to collective ownership and developmental goals rather than commercialized profit imperatives. The future of social development depends on it.

Thomas Marois is a Lecturer of Political Economy in the Development Studies Department at the School of Oriental and African Studies (SOAS), London, UK. Thomas works in the field of comparative political economy and development. Increasingly, he is investigating alternatives to market-oriented neoliberalism, particularly in the area of finance.